Stocks extend their consolidation – Will they attempt to reach new highs?

The stock market rebounded from yesterday’s local lows, but is this the start of a new short-term uptrend?

The S&P 500 index closed 0.02% lower on Thursday, rebounding from a local low of around 7,663. The market retraced a large part of its Monday-Tuesday advance as uncertainty surrounding the conflict in the Middle East continued. Today, the index is expected to open 0.2% higher, potentially leading to further sideways trading.

Investor sentiment has slightly improved, as reflected in Wednesday’s AAII Investor Sentiment Survey, which reported that 32.7% of individual investors are bullish, while 48.1% are bearish.

The S&P 500 is essentially extending its two-month-long consolidation, as shown on the daily chart.

S&P 500 futures contract: Nearing the 7,800 level again

This morning, the S&P 500 futures contract is trading higher, extending its short-term upward move.

Resistance is currently at 7,800-7,820, while support is at 7,760, among other levels.

Market outlook: Within a two-month-long consolidation range

The S&P 500 index is set to extend yesterday’s rebound. So far, this appears to be a correction of its recent decline. However, the index has managed to stay above several important support levels, including the area around 7,650, where the market closed on Monday.

The ongoing Middle East conflict, elevated oil prices, and rising bond yields remain negative factors for the market.

For now, the market still appears to be undergoing a flat correction of its advances from early August.

Here's what I think is most likely:

• The S&P 500 index is likely to extend its consolidation as investors digest mixed geopolitical and economic news.
• My Volatility Breakout System is currently long in the market.